Debt Capacity Bargain using Cashflows
Debt Capacity Bargain using cashflows. Calculated as follows: a. Calculate the avg. operating cashflow using last 5 yrs data (only debt-free firms) b. Assume Interest coverage ratio = 4 c. Divide Avg. Op. Cash flow/Interest coverage d. Divide c. figure by interest rate (Interest rate assumed 12%). e. This will give us the Debt capacity of the business. f. Min. value of business (Value of equity) is 1.75 times Debt capacity (Graham, Security Analysis, Prof. Bakshi BFBV Lecture 10) g. Intrinsic value = Min. value of business + cash available h. Calculate if Intrinsic value > Mkt cap.
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| S.No. | Name | CMP Rs. | P/E | Mar Cap Rs.Cr. | Div Yld % | NP Qtr Rs.Cr. | Qtr Profit Var % | Sales Qtr Rs.Cr. | Qtr Sales Var % | ROCE % | Debt / Eq | CF Opr 5Yrs Rs.Cr. | Cash End Rs.Cr. |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1. | B N Rathi Sec. | 96.99 | 9.44 | 99.41 | 1.55 | 2.30 | 29.94 | 13.55 | 32.97 | 28.45 | 0.00 | 88.00 | 134.86 |
| 2. | Taparia Tools | 4.27 | 0.06 | 6.48 | 726.00 | 28.92 | 62.11 | 219.52 | 12.64 | 45.49 | 0.00 | 285.65 | 10.83 |
| Median: 2 Co. | 50.63 | 4.75 | 52.95 | 363.77 | 15.61 | 46.02 | 116.54 | 22.8 | 36.97 | 0.0 | 186.82 | 72.85 |